The euro’s positive November is continuing into December, despite negative news on the economic front. With many countries enduring a second set of lockdown restrictions, the continent’s major economies are suffering. However, the prospect of new vaccines suggests there is light at the end of the tunnel and downward pressure on USD is helping to keep EURUSD looking good.
EURUSD has passed it’s previous 2020 peak of 1.2011 and has been trading at its highest level since 2018. It also ticked up against GBP to 0.90 as negotiators continue to struggle in the final straight of trade negotiations. Although both sides continue to stress that a deal is there to be done, the wait goes on.
The euro is continuing its good month against the US dollar. A string of officials including the Federal Reserve Chai Jerome Powell, and Janet Yellen, who is tipped to be the next Secretary of the Treasury have called for fresh stimulus, something which would weaken US real yields and undermine the attractiveness of the dollar.
The euro pushed through the psychological 1.2 mark reaching highs not seen since 2018. It enjoyed the biggest single day gain since march and, after surging to 1.21 closed well above 1.20. With the dollar still slipping back, the pair looks to have ended its period of consolidation and is pushing upwards once again.
The Eurozone received news that European Central Bank (ECB) policy maker Phillip Lane has been providing exclusive commentary to a select group of individuals and organisation. The news is also significant because Lane is known as being one of the most dovish experts in the ECB and could influence the ECB’s policy
The performance of the euro against the dollar is remarkable given the economic background.
Disappointing economic data within the Eurozone create headwinds and increase the chances of a stimulus, which could have an adverse impact on the euro’s recently strong performance. The Consumer Price Index (CPI) report came in at a negative 0.3 rating missing expectations of minus 0.2%. There was further bad economic news with European manufacturing Purchasing Manager’s Index (PMI) expanding at a slower than expected rate of 53.8 against expectations of 54.8. French manufacturing PMI also experienced a dip against a second set of restrictions.
However, in Germany, despite a second partial shutdown unemployment fell by 0.1% from 6% to 5.9%, though much of this comes from a rise in the number of companies using short term employees.
Experts are also looking ahead to the ECB’s December 10th meeting at which it is expected to announce a fresh stimulus injection.
Much of this data is at odds to sentiment. For all the bad news coming on the economic front the markets appear cautiously optimistic about both Brexit and Coronavirus. Such optimism could lead to more volatility if it turns out to be misplaced. However, news that the UK has become the first country to approve the Pfizer-BioNTech vaccine, suggests optimism could indeed be justified.
Meanwhile, looking ahead there is more important economic data with the European unemployment rate announcement and German retail sales.
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